Facebook Is Real Business, But Google Is Better For Ad Exposure

a hundred and seventy five dollars right now. That drop being reflected because of the poor report that the company gave after the close of trading yesterday, surprising many analysts joining us now. Colin gillis Director of Research at Chatham Road Partners. Colin gillis always a pleasure if someone said to you, gee, I'm an analyst who covers Facebook and I just got by what they reported. What are you feeling right now? It's a painful day to watch Facebook shares,

but a little bit of perspective is needed. Right the shares are just back to the level they were at in May. We knew that Facebook was going to be continuing to invest in security. We knew there's gonna be some concerns around the g d p R, right, the General Data Protection Regulation that's happening in Europe. So the magnitude of the pullback is severe. But this is still a real company, and it's still a real business, and it's still in an area where we're gonna see material growth. Alright.

So Colin, is this a buying opportunity? You know it is. But what I always tell people is, if you're looking at the space right and you want to have exposure to know Internet advertising, why not just own Alphabet You've got a very similar type of company, the same revenue stream, but you've got a more diversified suite of services, right, you know, Alphabet a A Google has eight platforms with a billion users, right, whether it's Gmail, Chrome, Maps, YouTube, Android,

the play Store, and Google Drive. So they have a much broader diversity of products, whereas Facebook really just has their core platform and Facebook and to a separate degree, Instagram. When does the bleeding stop in terms of the stocks sell off at Facebook? Do you believe right that that that's the number one question that's being asked, and you know it's gonna take several days to shake out. Um,

you know, the concern is the forward guidance. Right, we are going to see revenue decelerate and we are going to see expenses likely to tick up, but it may not be as bad as people are expecting. So, just like what we saw with the March quarter results, right where people were expecting the worst, it didn't come in quite as bad. And that's why they bit it back up to these record levels. You know, let's let it settle down for a little bit. I do think that

Facebook is a real business. I think the advertise users are not going to disappear, and I do think that people are still going to continue to use it. Right, there is some saturation that's happening. They have total about two and a half billion users across all their platforms. There's only three billion people who have access to the internet. Okay, but Colin, you know some people could say, as you said, this is a real business. They still can count more

than two billion people. You know, this is a huge proportion of the globe that uses the platform. So perhaps the flaw lies with the management, the executives who didn't guide the market better, who didn't basically indicate, look, things are slowing down, just hold your horses and and sort of and provide better expectations for what's to come in

real time. Yeah, you could say that, and you could also say that they did try to, you know, give certain signals right that that this was was coming um and that the market did not pay any attention to those signals, right, And that's why we're getting the reset that's happening today. Colin tell us about Amazon, Right, So, Alexa, which company will become the trillion market cap first? And we're going to find that out today after Amazon print.

And you know, Amazon is one of these companies that has built this incredible ecosystem right around their their prime member systems, and it is a strong contender to become the first company to rease that trillion dollar market cap. So again, an unbelievable run into this earnings print today, right. Uh, you know, we're looking at something a fifty year to date, So I wouldn't be necessarily surprised if there is, you know,

as a hiccup because expectations are so strong. But that being said, for the for the longer term, for the longer term view, Amazon is an incredible opportunity to own. So Amazon is sort of this interesting company because they don't see incredible margins, they actually aren't as profitable as their dominance would suggest, because that's their whole business model, right, basically to offer the lowest price uh in order for

bigger market share. So what two investors have to see to keep that going to the one trillion to our valuation, right, And what they do is is it's the degree of leverage that is baked into that Amazon business model. And when when you look, when you play around and you see, you know what a small decrease in marketing spend UM or you know some improvement in shipping costs or you know a tick up UH in in AWS. Right. You know services that UM are not physical goods, right, but

more digital goods. Right. That's the area where people want to be focusing in on to to to see that profitability. And quite honestly, right, you know they've run the core business at break even, right. All the profit is coming from AWS to to get that market share. But you've got one million prime customers. They are winning the entire retail battle, and um, that profitability will come just quickly. Colin, is there any other company that you need to own

other than Amazon and Alphabet? It wouldn't be Apple in my mind right, you know, certainly you know Apple prints next week. Um, they're lagging so far behind in my view. You know, there's the thesis is is that services will will make up for a saturated smartphone marketplace. But I don't see Apple having the chops in AI. I see Siri lagging behind Alexa and Google, and so I'd be concerned about that. Colin Gillis, thank you so much for

joining us today. Colin Gillis is director of research at See our partners take a look at small and mid cap stocks with Davils and Blubertocks editor, columnist and blogger at M Live. Go on the Bloomberg. The Russell two thousand is up, even though you are seeing some turbulence in the broader indices. Oh, absolutely, Lisa, and the Russell's gain amounts to nine tents of a percent, quite a contrast with the SMP five hundred, which is lower by a tenth of a percent. The Russell's sharpest game by

far belongs to Supervalue, whose ticker is s VU. The grocery wholesaler and supermarket owner has risen sixty four and a half percent after agree to a two point nine billion dollar takeover by United Natural Foods No Supervalue, had been under pressure from activist investor Blackwell's Capital to consider a sale United National Their ticker U and f I. That stock has one of the Russell's biggest losses in response to the deal. It's down thirteen and a half percent. Now.

Another stock lifting the index is Annika Therapeutics tooker a n i K, the maker of orthopedic products, is up twenty two percent. Anaka's second quarter earnings were more than twice analyst average estmate in the Blueberg survey, and sales beat projections. And you've got an even bigger gain in John Bean Technologies ticker j A b T. It's up almost twenty five The food and beverage technology company posts

a second quarter profit in revenue. Of the top Deestmates and UH, the Russell's steepest decline belongs to l s B Industries ticker l x U, the chemical companies, down fourteen and a half percent. LSB had a wider second quarter loss than analysts expected. Thank you very much, Dave Wilson. Remember to send Dave an email at d Wilson at Bloomberg dot net to sign up for his daily free

email newsletter. Well, you know, Lisa, we've been talking on a regular basis about the high cost of real estate in places such as Seattle, Silicon Valley as well as Austin, Texas. But it appears that there might be a slowdown on the way. And here to tell us more about it is Pressant Gopal, us real estate reporter from Bloomberg News, joining us from our one oh six one Boston Newberry Studios in Boston. And you can follow Pressant on Twitter at Mr Gopal and are god Paul? Alright? Mr Gopaul?

Tell us about the potential slowdown in these pretty hot real estate areas well. I guess you could say it was bound to happen, right, So, prices have just been um rising at a very rapid pace for for years now. Uh, they're out pacing uh income growth. It's, you know, more than twice income growth right now. So um, and then you throw in the increase in mortgage rates, and you could see that people who are stretching can only stretch so much. All right, So here's what I'm struggling to understand.

Mortgage rates haven't gone up that much. Uh, and you have seen a dearth of inventory in recent years. That's what people say. People aren't actually selling their homes. So how is this sort of how do you how do you sort of prove that it really is mortgage rates that's causing the slowdown. Well, I mean it's it's the one thing that has changed. But if you think about it, mortgage rates. You know, the prices that we had, you had the low mortgage rates baked in so on a

you know, percentage basis percentage point. You know, if you look at the how much mortgage rates increased in terms of what it's done to UM monthly payments, it is

somewhat significant. And then throwing in the uh, these home prices, you could you know, people, especially on the bottom end where prices are rising the most, UM, are starting to feel that, you know, homebuilder today, UM Politic Group just had their earnings and they actually, uh, they had a drop in orders and UM they blamed the increase in in mortgage rates UM and they said it was that they were seeing a slowdown, especially with the first time

buyers pre Shan. We spoke earlier today with Doug Duncan, economist at Fannie May. He said houses that have yet to be built are already being purchased that you can't find a home. What are your thoughts? Uh, Well, you know, there's there's some truth to that. So there is a real shortage of inventory. So you know, it sounds like it conflicts with what I've just been saying. But you know, the inventory levels are very low historically. They're just starting

to rise now from that very low level. So it's kind of like, um, you know, maybe we're on the cusp of a turning point um where you know, things still remain strong, but you know they're they're not uh, you know, prices aren't accelerating. Price coross isn't accelerating anymore in inventories which have been just dropping um month after month or now starting to rise, especially in the UH

in the hottest markets. So one thing that I think is sort of underlying this discrepancy, maybe we could call it, is that there seems to be a two tier market, which is affordable homes for people who perhaps are first time buyers or who are starting families, and homes that sell for more than a million dollars and are in urban areas um. And that there seems to be plenty of the higher end homes for sale, but the inventory of lower end homes, isn't there Is that an accurate

assessment of what's going on. Yeah, you know, it's actually even within the markets, right, So if you look at some of those price your markets, Uh, there's a shortage of starter homes in those markets. Um. You know, there may be more expensive homes in the markets, but there aren't as many of the entry level homes. And that's sort of what's making it really hard for folks to

get into, um the housing market. Uh. And prices you know are rising much faster on the bottom of those markets, you know, the lower end homes those persons rising much faster than they are for the for the more expensive homes. Not just real quick, here are we heading for another housing crash? Huh? You know, I wish I had my

crystal ball, I spend it out. Well, I'm not hearing that from a lot of people, so I think a lot of at least you know, they were wrong the last time, of course, but uh they're saying that, you know, we have a still a strong economy, and um, this is just all an affordability problem. And if prices actually fall a little bit, it actually helps because people will be able to get back in you might see more sales as a result. Prosianco Paul, thank you so much

for being with us. Always a pleasure to speak with you in your story today on the Bloomberg was really good on this issue. Proshanko Poul's US real estate reporter for Bloomberg News. Marijuana is a growing business and a growing number of professionals are entering the field in a host of very traditional ways. And here joining us now is Richie Gautam. He's executive chairman of M. Harden Group, which is based in Denver. He's here with us in

our and three studios in New York. RICHI, Um, you worked at Goldman Sachs, you managed money with a private office. You're at the original investor four years ago with M Hardin Group. Why did you get into this business? So as an investor, we were attracted to the market four

years ago. It was such a new market and a developing market within the US, and we had an existing relationship with one of the founders of M Hardin who brought us into uh into the industry to really understand the marketplace and how it was so fragmented from state by state that we wanted to take advantage of the opportunity by creating what is now known as M Martin the management company, and the industry being marijuana mostly medical

or everything predominantly medical. Today it's obviously changing with more recreational coming online, but our business today over is focused on the medical market. Tell people about your business, what actually do you do. M Martin's a management company. So we started the business managing cannabis assets on behalf of license owners. So anyone who came into the industry and got a license, whether it was Colorado or other states,

frankly didn't have the operational background to run a cannabis asset. Really, no one had that background coming into the space in the legal framework. So M Hardan set up a management company to come in and operate the assets turn key on behalf of the license owner. So not too dissimilar from a real estate owner hiring a Marriott or Starwood to come in with a flag and operate a turnkey hotel.

So our hotel flag was the original genesis of the business. So, for example, you have actual workers that are employed by M Hardan that are working in green houses, that are working in retail establishments. There's three D sixty two employees across the US managing cultivation, processing, and retail facilities and cannabis. And for cultivation it's indoor grows, outdoor and greenhouse facilities. How big do you think the marijuana industry could become

in the US if the recreational aspect is legalized? So the numbers point to a seven billion or so industry size today in the US that's growing to billion over the next few years. We also have exposure to Canada, which is about a half a billion dollar industry today growing to six or seven billion. That growth is really predicated by the opening of the recreational market in those in those states and jurisdictions. So so long as recreational opens up the way that we expect it to, you'll

have that lift. So one big question is, once you do get a legalization, what stops the Philip morris Is of the world from plowing right into this field and using their vast distribution and cultivation networks to blow everybody else out of the water. And what would you say to that Philip Morris doesn't grow cannabis, And growing cannabis is a real specialty commodity. It takes a lot of

experience and and efficiencies to bring product to market. So many folks outside looking into this space really think it's just a plant, you grow it, and really don't put a quantum of risk on on what it takes to bring product to market. We have mastered that says of bringing legal cannabis to the market, passing health standards, optimizing space capture, and all of these production facilities. Our business

has produced and sold. Our license facilities are produced and sold over one hundred thousand ms of this product since we started. That's a number that no one can match. And that includes Philip Moore's. Now you've got the different segments, right, you have cultivation, yes, processing, and then ultimate retail sale.

How do you scientifically or technically offer consistency across all that are there testing facilities or like in any kind of let's say drug you know from the pharmaceutical industry, you want to make sure that what you're buying from one pill bottle is the same as you're getting from another pill bottle. All right, that's a great question. So the genesis of our businesses on the cultivation side, we

were cultivators first. We we had we bolted on the processing expertise, and we bolted on the retail management side over the years. Cultivation is the driver of the consistency, and our facilities that we've stood up, whether it's in Hawaii or in Halifax, have a very standardized approach to operations, to production and ultimately the consistency of the product. Folks right now have more of a niche approach where you have one particular facility type in California another in Colorado.

We've standardized the process of bringing product to market, which ultimately will yield to pharmaceutical products with consistency, recreational products with consistency across multiple jurisdictions. So you're planning currently in initial public offering and you've raised money, certainly in the debt markets. I'm just wondering, does the fact that you're dealing with a currently mostly illegal substance complicate your fundraising abilities?

Not necessarily complicated. And we've been obviously as an investor in this business four years ago and understanding the nuances of the industry. What we've done is take the knowledge of how to raise capital in general from prior experiences and other industries and just a general landscape of capital sources today and we've really focused are in tris in Canada.

Canada is where we're going to list. Canada is our h for all intents and purposes are booking center and the booking center for many of these cannabis companies that are public today. So we've spent the last year and a half um putting together our Canadian capital market strategy. Of our company today is owned by Canadian institutions long only money that have really had limited experience in the cannabispace, but they bought our opportunity because it's a managing company.

We have actual revenue, actual earnings, actual operational experience. So we've already planted an institutional shareholder base in our company. We've already planted the Canadian landscape there and that's where the source of capital has come from, and that's where we will be listed. RI should just give you about

twenty seconds here. What's the biggest mistake people make when they hear about investing in the cannabis industry and they want to get into it understanding that there's a difference between a license owner and an asset manager. So there are plenty of companies out there that own licenses. Very few of them actually have the operational expertise to scale their businesses, and that's what we have. I want to thank you very much for joining us. Richid is the

executive chairman of m hard Dean Group. They are based in Denver, giving us details about raising capital and the intricacies of the legal cannabis industry. A rocky period for the automobile industry. There has been widespread disruption on a variety of levels. We have tariffs, we have the peak Auto sort of meme that's been going around here to talk about all that is. Scott Painter, founder of Fair

f a i R. Based in Santa Monica, California. Um, Scott, you are the former chief executive and founder of True Car. Can you just tell us before we get into a wood summer calling Carmen Geddon which was yesterday, UM, can you just explain what is fair? Sure? Fair is an app that represents a completely new form of ownership. It's a way to get a car on your phone, and you subscribe to it in the same way that you get your your data, your content, your music, your movies.

But there's no long term commitment. You just simply download the app, scan your driver's license, link a form of payment shop and you can sign with your finger. So, Scott, the reason why I wanted to start with the model of your business is because it sort of points to a real seismic shift in the automobile industry. Do you think that the weakness that we're seeing today, certainly led by Ford, but also in GM and Chrysler, do you think that the weakness really comes as much from this

changing model of car ownership as it does from tariffs. Well, I think that this is a really interesting time to be in the auto industry. If you're an incumbent automaker, you're certainly thinking about how do you regain the trust and the relationship with modern consumers who have almost binarily said they don't want to go into a dealership and do battle. They don't want the long term commitment. So I think you're seeing all sorts of new business models arrive, arise,

and you've got a lot of diversification happening, happening. I think most of the carmakers at this point are almost invested in just about any new ownership model that comes up on the horizon. Just recently we saw you know, GM in er the peer to peer market as well, which is, you know, sort of a big question mark as to whether or not customers are going to go for it, but it does show that they are willing to be flexible and explore options that they never would

have before. Now you have been in the autumn more of connected to the automobile industry in one way or another since you were fourteen years old, correct, You know, I think that great entrepreneurs and great companies solve real problems. I think the problem of buying and owning a car is something that really technology can offer a great solution for. And I do think that, you know, it should be simpler, it should be more accessible, and I think you know,

technology can offer that and delivered incredible savings. All right. What I was going with that is, do you believe over the course of your career that the large automobile manufacturers such as four GM and now Fiat Chrysler, have they been leaders or are they followers when it comes to connecting with customers. Well, I think historically they have not been leaders. I think that right now though, they are absolutely leading and innovating and doing almost anything they

can to reset that relationship with our consumers. So it is a time where the smartphone and technology and transparency

have really created a real transformational opportunity. And I think that companies like Tesla and Uber and all of this have really changed the paradigm where it's no longer just about making a good product, it is about really shaping that relationship and how you buy and how you engage the car, and so new ownership models like what we're building at fair I think, really have a lot to

do with it. Certainly, there's a lot of exogenous stuff tariffs and the industry and the health of the industry that are certainly affecting all of this, But keep in mind there's also a new and a used car business. The used car business by dollar volume is twice as big as the new car business, and by velocity it's three times larger. So what are you seeing in the

used car market right now? Well, right now, I think we're getting to a place where we've got really great information if you're a buyer for a used car, though,

the used car prices are coming down. In fact, over the last twelve months we've seen used car wholesale and retail pricing drop more ratably than we have over the last one thirty years, almost a decline, and that's in large part because we've been at peak production for the last three or four years, and that's creating an oversupply situation.

We almost make seventeen million cars. On the new car side here in the US, We're going to see six million lease returns coming back into the market over the next twelve to eighteen months, and that will have a continued effect on retail and wholesale pricing of used cars, and that will make used cars a greater value than they've been over the last decade. Scott, what does that mean though about where we are in this auto market? I mean, does this sort of give steam to the

peak auto discussions that we're hearing well? I think that there's no question that if you look at demand for cars over a long period of time, it tends to be very linear, but the industry itself tends to also behave very cyclically. We go from a peak production and say two thousand, you know, six seven, where we are making almost sixteen million cars, down to a low of almost nine million cars in two thousand nine and ten, and then now we're back up at historic highs of

seventeen plus million cars being produced. So when those cycles sort of come through the industry, they have a massive impact on whether we are buying new cars or buying used cars. And then you also have very interesting financial contracts, Whereas in two thousand and nine to get the industry going again in terms of volume, we actually introduced and overweighted on leasing. Today almost of premium and luxury luxury

cars are leased. Scott, is there, Ah, Is there a model that Tesla is following that you believe will ultimately have to change or can you envision that the industry is going to follow the Tesla model? Well, I think that Tesla is sort of leaning in this direction. But I think that the way that we all go to the bank to borrow a big pile of money to buy a depreciating asset is really what has to change.

You've got almost one point five billion cars on planet or carrying five trillion dollars of consumer automotive debt, and it's the worst financial decision free somebody just getting started in life, or somebody who has maybe got a spotty payment history or is in financial trouble or is just building a family to go out and get into debt in order to get transportation and the thing they need

to get a job or to get around. So I think the model of ownership fundamentally does have to change because the you know, it's not just a convenience issue, it's just a bad financial bargain to go out and borrowed a bunch of money tipped by a depreciating asset. And finally, Scott, what kind of car do you drive? You know, I've got about four cars all from Fair. And you know this, this model really works for anybody.

It doesn't matter whether you have great credit and just want convenience and you're an early adopter or you're somebody who's really working a couple of jobs and struggling and on a budget. Um. But I've got right now, four kids, and I've got different cars for different different things, but they're all cars that I subscribed to through Fair. Thank you very much for being with us. Scott Painter is the founder of Fair. They are based in Santa Monica, California.

He is the former chief executive and the founder of True Are. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform. You prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio